Our Popular Commentator Steve Herbert asks, why are employees still feeling the financial pinch?

There has been plenty of positive financial news in the national media over recent weeks, most notably around reductions in direct taxes through PAYE, and the continuing decline of UK inflation rates towards normality and the Bank of England’s target 2% rate.

This suggests that the immediate pain of the cost-of-living crisis is now receding for your employees and their families.

But sadly, this is often not the reality.

Simplified stories

For the national media stories on economic issues are (as ever) somewhat simplified by their authors to make them more engaging and digestible to the masses, and such stories are also often influenced by a degree of positive political spin. It follows that the headlines often do not reflect the reality for your workers.

This mismatch between headlines and reality can be evidenced in two recent news stories.

Tax cuts

Cast your mind back to last November, and then again to last month, and you will recall that The Chancellor of the Exchequer announced not one but two significant cuts to employee National Insurance (NI) rates. The standard employed NI rate for middle-band earnings now stands at just 8% (a full 4% lower than at the start of the 23/24 tax year).

This is a saving that is very welcome to millions of workers. Yet this saving will be at least partially offset by the continuing freeze of Income Tax and National Insurance thresholds. The result of that ongoing decision is that more of the employee’s earnings are subject to some or higher taxation over time, even if the rate of that taxation has dropped from last year’s levels.

It is a confusing picture, and one that the respected Institute for Fiscal Studies (IFS) has sought to explain. The IFS estimates the average saving after tax cuts and threshold freezes is around £340 this year.

Yet even that is not a true reflection, because other – less direct forms of taxation – are still also in play and going up.

Across England and Wales local government is in financial trouble, and many councils are looking at the maximum allowable increase in Council Tax of 4.99%. The average cost increase across England and Wales is estimated to be more than £100 per property.

Others will see even bigger increases, with proposed rates of 10% (Woking), 12% (Pembrokeshire), and an eye-watering 21% for those living in Birmingham.

And other forms of “taxation” – for instance, car tax, passport costs, and the TV licence – are all increasing.  It follows that the “average” family will probably be better off in taxation terms over the coming year, but not by enough to significantly improve their monthly income.


That said, inflation is now moving in the right direction. From a peak of 11% it is now closer to 3%, which is much more acceptable (if still 50% higher than its ideal Bank of England target rate).

The latest drop was widely – and rightly – celebrated by all, yet we must not overlook the fact that even a modest 3% inflation rate will add to the huge cost increases sustained over the last two years.  Whilst a few individual prices may drop, the weekly shop remains way more expensive than at the start of the decade. And whilst wages have finally overtaken inflation, there is still much ground to be made up before people actively feel better – not worse – off.

Finally, it should also be remembered that households experience the impact of inflation in vastly different ways. Higher-income households spend more of their money on discretionary items, whereas lower-income families typically spend more on life’s essentials and therefore have less latitude available to control their outgoings.


This is an important point for employers considering pay awards in 2024, and for those wanting to make a more informed decision for their workforce, I would direct them to the Office for National Statistics (ONS) personal inflation calculator which may well provide some useful insights as to the price pressures being experienced by your wider workforce at different income levels.

Employers should also remember that headline inflation often overlooks mortgage and/or rental costs, and as I have explored in this column before, both are on the rise. The ONS has created another useful tool which employers can use to see how much rental costs have gone up in their geographical location(s) which again may prove useful.


So, despite all the good news, the reality is that many employees and their families will continue to struggle financially in the year ahead, and employers must stay alert to this challenge, the impact on their workers, and by extension the potential damage to productivity also.

Steve Herbert, Independent Employee Benefits, Wellbeing, and Reward Expert and Communications & Presentation Skills Coach